EUR 120.00 For Business Accounts Only

MOSL: LEMON TREE HOTELS (Buy)-New hotels, non-recurring costs dent EBITDA

LEMON TREE HOTELS: New hotels, non-recurring costs dent EBITDA

(LEMONTRE IN, Mkt Cap USD0.6b, CMP INR58, TP INR72, 25% Upside, Buy)

 

• Miss on EBITDA: Revenue increased 18% YoY to INR1,528m (our estimate: INR1,622m) in 2QFY20. However, like-to-like EBITDA (adjusted for Ind-AS 116) was up only 12% YoY at INR404m, with the margin down 150bp YoY to 26.5%. PBT loss stood at INR27m versus INR89m in the year-ago period. The company reported a loss of INR22m in 2QFY20, as against a profit of INR57m in 2QFY19 due to lower other income and higher depreciation/interest. For 1HFY20, revenue/EBITDA were up 15%/32% YoY.
• New hotels drive revenue growth: ARR increased 4.9% YoY to INR4,133 in 2QFY20; occupancy declined 350bp YoY to 74.8%. However, on a same-hotel basis, ARR was up 2.9% YoY, while occupancy was constant at 78.2%. Despite 19% revenue growth, like-to-like EBITDA (adjusted for Ind-AS) was up only 12% YoY as the recently commenced hotels are yet to stabilize and incurred additional cost amounting to INR22m (of which INR8m is non-recurring expense relating to training of employees, while the balance is attributed to wage increase and provident fund). During the quarter, although ARR of new hotels was higher (by 15%) than the old hotels, occupancy at the former was relatively low at 58.8%, restricting overall EBITDA growth.
• Valuation and view: For FY20/21, we largely maintain our revenue and EBITDA estimates, but cut our PAT estimates by 8%/3%, mainly due to lower other income. Stabilization of recently launched hotels in Pune, Mumbai, Chandigarh and Dehradun is likely to drive operating profit in 2HFY20. We value the stock at 18x FY21E EV/EBITDA and arrive at a target price of INR72. Maintain Buy.